Tsakalotos: Troika (or quartet) talks had 'positive climate'

The Greek finance minister Euclid Tsakalotosand the economy minister Giorgos Stathakis have been meeting with the lead negotiators from the EU, ECB and IMF, after the IMF’s new head representative to Greece, Delia Velculescu arrived in Athens late on Thursday.

Greece’s BHMA FM radio station reports on its website that also present at the meeting, which is taking place at the Athens Hilton, is the European Commission’s Declan Costello, the European Central Bank’s Rasmus Refer and European Stability Mechanism’s Nicola Giammarioli. The four institution heads – dubbed the quartet – are scheduled to meet with the governor of the Bank of Greece Yannis Stournaras.

The creditors have reportedly requested:

the abolition of tax exemptions, oil subsidies and other benefits for farmers

the increase of the tax advance for professionals and self employed

the opening of closed professions

the abolition of parafiscal charges collected by bodies, municipal authorities and pension funds and

the abolition of an 8% solidarity tax on incomes over 500,000 euros as they reportedly claim that it may result in tax evasion

The last request, for the abolition of solidarity tax, affects about 350 Greek taxpayers. The institutions have also proposed the introduction of a single 6% tax rate on incomes over €50,000.

On Thursday the institutions’ technical teams had a special meeting to discuss parafiscal taxes and the possibility of establishing an interministerial committee in order to simplify business licensing process. Talks will also begin so that by the end of the year there will be new a framework for collective bargaining that will guarantee justice and efficiency in the workplace.

EU: IMF's calls for debt relief 'fully compatible' with EU agenda

The EU said on Friday that the International Monetary Fund’s calls for debt relief for Greece are “fully compatible” with the agenda in Brussels for negotiating a third Athens bailout.

The IMF dropped a bombshell on Thursday when it said that it would only join a new bailout if Greece and the EU agree on conditions for medium-term debt sustainability, including debt relief and economic reforms.

Mina Andreeva, spokeswoman for the European Commission, the executive arm of the 28-nation European Union, told reporters in Brussels, according to AFP:

It is clear the IMF has a different set of procedures and a different timetable.

It is a two-stage process and this is in line with what was discussed at the [July 12-13 eurozone] summit and the resulting statement, and is also fully compatible with the EU agenda.”

Spanish civil servants to get first pay rise in 5 years

Spain’s prime minister Mariano Rajoy has promised the country’s 2.5m civil servants their first pay increase in five years. He said the improving economy means civil servants can look forward to a 1% raise next year.

The latest figures, released on Thursday, showed Spain grew by 1% in the second quarter, the eighth quarter the economy has grown. However, its unemployment rate is still 22.4%, the second highest in the EU after Greece.

Canada slides into recession

Canada is in recession: GDP unexpectedly fell 0.2% in the second quarter. Economists had expected a flat reading. The economy has contracted in six out of the last seven months.

Derek Lindsey, analyst at BNP Paribas, says:

We continue to see falling commodities prices weighing heavily on the economy, with mining, utilities, and manufacturing presenting biggest drags on the goods side.

The Bank of Canada is likely to read this report as supportive of their move to cut rates at their last policy meeting earlier this month. We expect further easing ahead, as investment and exports remain in contractionary territory and the economy remains vulnerable to a correction in housing and a pull-back in spending due to high levels of household debt.”

Holger Schmieding, chief economist at Berenberg Bank, has just sent his thoughts on the Greece saga and the IMF’s role.

IMF versus Europe? The IMF wants to provide new credits to Greece only if Europe grants much more debt relief to Athens first. Major parts of Europe will only ratify a third support programme for Greece if the IMF is on board from the very beginning and if Athens meets the first reform targets in such a programme. On a good day, this dispute as to who needs to move first, the IMF with a contribution to a new bailout programme or Europe with more debt relief, could be solved by wily diplomats in an hour. On a bad day, it could potentially scupper a deal.

· Scary logic. The scariest aspect of the dispute is that the IMF is starting to sound almost like disgraced Greek finance minister Yanis Varoufakis: “It’s about debt relief.” Nothing could be more wrong than that.

· Remember the big mistake? The worst mistake Europe has made so far in the Greek crisis was the decision in mid-2011 to heed bad advice from the IMF and restructure privately-held Greek bonds. Unfortunately, nobody had put adequate defences against contagion in place beforehand. The resulting turmoil in Italian and Spanish bond markets pushed the entire Eurozone into recession within three months. The escalating crisis in its major trading partner scuppered Greece’s chance to recover early from its malaise. Only when the ECB stepped in decisively in the summer of 2012 could confidence in Greece and the Eurozone turn upwards again (see chart).

· Once again, debt relief is a big fat red herring. Egged on by celebrity economists from the US and elsewhere who do not seem to understand Europe at all, Greece’s radical left finance minister preached to the world from January onwards that Greece needs massive debt relief, while he started to reverse key supply-side reforms at home. The result of Syriza’s policy reversal is obvious: in late 2014, Greece was on track for Spanish-style growth of 3%. After Varoufakis, the economy has fallen back into deep recession, the banks are bust and Greece’s debt-to-GDP ratio looks set to reach 200% in 2016 instead of 165% as it would have without the Syriza follies.

· Policies matter much more than debt. If bad policies can raise the projected debt burden by 35 points and push Greek corporate confidence from above average back towards almost record lows (see chart) within seven months, the conclusion is obvious – it takes good policies rather than debt relief to contain and reverse the damage. That the IMF puts so much emphasis on upfront debt relief is outright dangerous. It gets the priorities wrong. And by causing an unnecessary new dispute, it adds to the pervasive uncertainty that is crippling Greece.

· Europe is right. Greek debt should be re-profiled if and when Greece returns to sensible policies. Prime minister Alexis Tsipras is showing signs that he has finally understood that. Dear IMF, please support it as well.

We’re working on the basis of Monday but we’re waiting for the minister’s decision, which is the legal prerequisite for the reopening.”

Under plans approved by the ECB, local investors would be allowed to buy shares with existing cash, but would be banned from withdrawing money from their Greek bank accounts to buy shares.

The reopening has been held back by technical glitches at local banks, which will have to enforce the trading restrictions. Many securities traders have taken an early summer break during the five-week closure.

Copper faces biggest monthly loss since January

Returning to the commodities slump, copper and most other metals have continued to slide on Friday, on the back of persistent worries about demand in China, the world’s top metals consumer. Copper is on course for its biggest monthly loss since January.

Chinese factory data are due to be released over the weekend and are expected to show the manufacturing sector steadied in July.

Copper slipped 0.7% to $5,221 a tonne on the London Metal Exchange, putting it on course for a 9% drop this month, the second-biggest decline since 2012.

Aluminium lost 1.1% to a six-year low of $1,624.50. Nickel was also down 1.1%, falling to $10,900 a tonne. Zinc dropped 1% to $1,931 a tonne while lead shed 0.7% to $1,701.

Eugen Weinberg, head of commodity research at Commerzbank in Frankfurt, told Reuters:

I think in the metals we are in an extended, excessive downward move, which may continue for some time. It’s very difficult to call a bottom, especially given the insecurity and high volatility on Chinese equity markets and the somewhat stronger dollar in recent weeks.”

Tsipras: Varoufakis may have bad dress sense, but he's no crook

Greek prime minister Alexis Tsipras has defended his former finance minister Yanis Varoufakis, saying he may have bad dress sense, but he’s no crook.

He told parliament on Friday:

You can blame him all you want for his comments, for his political plans, for his bad taste in shirts, for his holidays on the island of Aegina. But you can’t say that he is a crook, you can’t say that he stole the money of the Greek people, you can’t say that he had a secret plan to lead the country onto the rocks.

Varoufakis came under heavy fire this week after he admitted that he had drafted contingency plans for a parallel payment system that could have eased a euro exit.

He could face criminal charges, as reported earlier this week, along with the five-member team tasked with organising the alternative currency. The working group was headed by the well-known US economist, James K Galbraith, who was seconded to help Varoufakis until the politician’s resignation earlier this month.

Tsipras strongly rejected accusations of a secret plot to take Greece out of the euro.

Athens stock exchange to reopen on Monday

The Athens stock exchange is due to reopen on Monday, CNBC reports, citing Costas Botopoulos, head of the Greek Capital Market Commission, but there will be restrictions on trading. It was expected to resume trading this week but didn’t because of technical issues at local banks.

Local investors won’t be allowed to use bank deposits to buy securities, because the European Central Bank is worried about a potential massive capital outflow from the banking system.

The Athens stock market has been closed for the last five weeks, since Greek prime minister Alexis Tsipras called a referendum on the country’s bailout.

Russian central bank cuts key rate to 11%

The Central Bank of Russia has cut its key rate by 50 basis points to 11%, as expected. It predicted that inflation would fall below 7% in July 2016 and reach its 4% target in 2017.

Despite a slight increase in inflation risks, the Russian central bank believes the balance of risks is shifting towards a “considerable” cooling of the economy. You can read its statement here. The latest reduction represents a slowing in the pace of monetary easing compared with cuts made earlier this year.

UK shares slip, dragged down by commodity stocks

On stock markets, Britain’s FTSE 100 index has given up earlier gains and slipped to 6664.31, a fall of less than 5 points, dragged down by mining stocks. Copper and other metals prices continue to slide because of worries about demand in China, the world’s biggest metals consumer.

A sharp sell-off in Chinese stock markets over the past few weeks has raised questions over the state of the wider economy. Chinese shares posted their biggest monthly decline since mid-2009 in July.

Spreadex analyst Connor Campbell says:

With Chinese shares seeing their worst month in six years, it’s hardly surprising that investors aren’t keen to hold onto their commodity shares going into August. This caused the FTSE’s heavy-hitting oil and mining stocks like BP and Rio Tinto to give back whatever mild recovery they had seen in the middle of the week, leaving the UK index to tip into the red following two days of stellar growth.

'Sex, Lies and Interest Rates' - Buzzfeed story

Detectives bugging the phone of a businessman suspected of laundering millions for organised crime gangs heard him romancing the wife of a Bank of England insider to glean highly sensitive information.

The inner sanctum of the Bank of England was penetrated by a “powerful criminal network” linked to money laundering, terrorism, and contract killings, according to explosive intelligence that the police and MI5 tried to keep secret.

The details of the covert operation – which uncovered a suspected gangland plot so audacious detectives feared it could “destabilise” the British economy – are revealed for the first time in secret police files seen by BuzzFeed News and interviews with several well-placed sources.

The infiltration was discovered when detectives tapped the mobile phone of a Ferrari-driving businessman suspected of laundering money “on a vast scale” for organised crime gangs and reported hearing him receiving secrets from inside the Bank.”

Soaring Swiss franc pushes central bank into loss

The sharp rise in the value of the Swiss franc against the euro has pushed Switzerland’s central bank into a first-half loss of 50bn francs (£33bn). This includes 47.2bn francs of foreign-exchange losses.

The Swiss National Bank, which is owned by the government, said this could affect its ability to pay a dividend this year.

Switzerland sent shockwaves through financial markets in January when it abruptly abandoned the cap on the franc’s value against the euro. The franc skyrocketed as investors sought a safe haven amid the ongoing eurozone debt crisis, with the Greece saga at its heart.

Danae Kyriakopoulou, senior economist at the Centre for Economics and Business Research, has also looked at eurozone unemployment.

As usual, the overall figure masks vast differences among the member-states of the currency union, with the rate ranging from 25.6% in Greece to just 4.7% in Germany. However, signs of convergence are emerging, especially from Iberia: Spain and Portugal saw some of the largest decreases in the unemployment rate this month, from 24.5% to 22.5% and from 14.3% to 12.4% respectively. Still, the gap between core and periphery remains fairly wide and will take a long time to close, if it ever does, under the current institutional set-up of the currency area.

Part of the reason behind this becomes clear when looking at unit labour costs across the bloc: Between the introduction of the euro in 2000 and the onset of the financial crisis in 2008, labour costs in the Eurozone periphery increased markedly. Ireland for example saw unit labour costs rise by almost 30%, while Greece and Italy recorded rises of around 15%. Germany, meanwhile, saw unit labour costs decline consistently over time. In the absence of exchange rate flexibility, the path of fiscal austerity and internal devaluation (cutting wages) was followed to bring down unit labour costs in the periphery. While this has led to some degree of adjustment in recent years, labour costs in Greece, Spain, and Ireland remain fairly close to or above their 2000 levels. The picture in Italy is even worse, where no real adjustment in unit labour costs has been seen. Italian unemployment increased from 12.4% to 12.7% in June.”

ING economist Bert Colijn says the 31,000 rise in eurozone unemployment in June, which left the rate at 11.1% for the third month in a row, is a “disappointing result as it was the first increase in the number of unemployed this year”.

The increase was mostly due to Italy, which saw a jump in unemployment of 55k people, while most other European economies experienced declines. France saw a marginal increase, while unemployment in Germany, Spain and Netherlands continued to decline, indicating that the labour market is strengthening. The jump in the Italian unemployment rate to 12.7 percent is concerning, but business surveys indicate that a turnaround in employment growth in Italy could be around the corner as many businesses are planning on hiring. Economic conditions are also not in line with continued increases in unemployment for the rest of the year.

Overall, the trend in the European labour market remains one of continued slow recovery, which is normal for post-recession recoveries in the euro area. Even though the pace of job recovery is too slow to put a significant dent in high unemployment rates across the monetary union at the moment, there are positives to note. The economy is profiting from slowly improving employment and faster wage growth, which is boosting domestic demand. Especially in the current slow inflation environment, real wages are growing at pre-2008 pace, which is strengthening the recovery. This in turn will help further improvements in unemployment. Job vacancy rates in Europe are also slowly improving, pointing towards a moderate tightening of the market. Expectations are that the current trend of unemployment declines will be continued throughout the year, as the European economy continues to recover. This will not be enough to bring the unemployment rate into single digits before the end of the year, but will help to support the economy moderately.